How Secured Credit Cards Affect Your Credit Rating
Print View - Published: Mon, 11 Jul 2011 at 11:14 AM
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I want to discuss how a secured credit card might, or might not affect your credit rating. However, to avoid any confusions lets start by defining exactly what a secured credit card is.
A secured credit card is basically a line of credit through a credit merchant, typically a bank, and affiliated with one of the major credit card networks, such as Visa or MasterCard; which requires an initial deposit in an amount equal to or greater than the credit line to open.
In other words, if you want a $1,000 credit limit on your card, you would have to deposit $1,000 plus any associated bank or program fees to the issuing merchant before your credit card would be available to you. Then, your deposit acts as collateral for the merchant in the event that you don’t pay your monthly bill.
Looking at the way these accounts are designed, it’s easy to think that they’re really not worth it for the average consumer; and indeed if you have a fair credit rating or history then you would be better off to push for a traditional, unsecured credit line instead.
Still, for many people out there, secured credit lines are the only option at this point in time, and despite the fact that they are often costly and more of a hassle to obtain, they aren’t necessarily a bad option.
That leads us into the point of this posting, which is how secured credit cards affect your credit rating.
Many, if not a majority, of unsecured credit card issuers report to the 3 major credit bureaus (make sure that any institution you deal with does before opening a secured line of credit with them). This means that for those people who seek secured credit cards because they have low or poor credit ratings, that over time if they use their secured cards and make their payments on time each month they can establish their credit ratings or rebuild them into a better position.
The key to gaining the maximum benefit towards your credit score with a secured credit card is to:
- Make sure the issuer reports activity to the 3 major credit bureaus
- Use your secured card to make purchase each month (several small purchases per month is fine)
- Pay off your secured credit card balance each month
It’s vital to not just sit on your secured card and never use it. The only way to have anything positive reported to your credit score is to use the card, so by making small purchases each month and then paying the balance off in full each month, you get a steady reporting of very positive activity. Plus, by paying the balance off in full each month you avoid carrying over interest gaining balances.
About the Author
This article was written by a contributing staff writer of www.badcreditfinancingpage.com
While every effort has been made to verify the accuracy of the information contained within this article, this content is for informational purposes only and is not meant to substitute for the educated and informed advice of professionals.
Your consumption and use of the information published on this site is at your own risk.
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